We are
pleased to update you on the work of the Financial Planning Coalition.
Since our December 15, 2011 communication, in which we shared with you the
findings of a study and survey conducted by The Boston Consulting Group (BCG)
regarding investment adviser oversight, we have been continuing to work
collaboratively to advance our shared policy positions. Our work has
focused on implementation of two provisions in the Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act): the Section 914
enhancement of investment adviser oversight and the Section 913 rulemaking
on the fiduciary standard of care.

Dodd-Frank
Section 914: Enhancing Investment Adviser Oversight

As
you may recall, Representative Spencer Bachus (R-AL), Chairman of the House
Committee on Financial Services, released a discussion draft of a bill last
September that would authorize Congress to establish one or more
self-regulatory organizations (SROs) to oversee investment advisers.
Chairman Bachus is expected to release a revised version of his investment
adviser SRO bill soon. The SRO proposal would have a significant impact on
investment advisers if it were passed by Congress and signed into law. It
would likely result in the creation of an Investment Adviser SRO by the
Financial Industry Regulatory Authority (FINRA )that would be significantly
more costly than enhancing the Security and Exchange Commission’s (SEC)
ability to continue overseeing advisers.

Given
the potential impact on our stakeholders, the Coalition has been actively
engaged in research and advocacy on this issue. We will be closely
evaluating the SRO bill when it is released and will provide you with a
full analysis. If, as expected, the bill mandates an adviser SRO, we will
be asking for your help in supporting the Coalition's position by
urging Congress not to establish a new, costly bureaucracy that is
unnecessary to achieve increased adviser examinations.

Below
is further background information on Section 914: the issues before
Congress, the Boston Consulting Group Study, and Coalition advocacy and
communications efforts.

Background on Section 914. The proposed IA
SRO was one of three options recommended by the SEC in a Study under
Section 914 of Dodd-Frank (“SEC 914 Study”) to increase the frequency of
examinations of investment advisers, which currently average about once
every eleven years. The Study also recommended: (1) authorizing the SEC to
collect user fees to enhance its oversight of investment advisers; and (2)
authorizing FINRA to examine dually registered broker-dealer and investment
adviser firms for compliance under the Investment Advisers Act of 1940.
Missing from the SEC’s Section 914 Study and from the debate and testimony
associated with the original SRO proposal from Rep. Bachus was any hard
data related to the cost of the options for enhancing investment adviser
oversight.

Boston Consulting Group Study. As you are
aware, the Financial Planning Coalition, in collaboration with other
organizations, addressed this lack of data by engaging BCG to conduct an
economic analysis of the options that the SEC recommended to Congress. BCG
modeled the annual costs of an enhanced SEC oversight program as well as
the costs of a FINRA-IA SRO and a New-IA SRO. BCG assumed that for all
scenarios, investment adviser examinations would be increased to once every
four years. As we reported last December, BCG found that creating an SRO
for investment advisers would likely be twice as expensive as funding an
enhanced SEC examination program and membership fees for an SRO would be
twice as expensive for investment advisory firms as user fees for an
enhanced SEC examination program. In addition, a survey conducted by BCG
found that more than 80 percent of investment advisers preferred SEC
oversight to a FINRA- IA SRO. That preference remained strong even under
scenarios in which the SEC oversight cost more than a FINRA-IA SRO.

Coalition Advocacy and Communications. The BCG study
reinforced the Coalition’s policy position: that the SEC should be provided
sufficient resources to leverage its existing infrastructure to increase
oversight, rather than create a whole new bureaucracy that is twice as
expensive and will burden small advisory businesses with unnecessary layers
of regulation.

The Coalition has been successful in using the BCG
study to focus media attention on the problems with an SRO for investment
advisers. The BCG study has also been very well received, as a significant
contribution to this important policy issue, in our meetings on the Hill
with members’ offices from the House Committee on Financial Services. It
provides compelling support for our position that enhanced SEC oversight is
the most efficient and effective solution.

Our
Financial Planning Coalition, in collaboration with Consumer Federation of
America (CFA), AARP, the Investment Adviser Association (IAA) and Fund
Democracy, submitted a letter
to the SEC on March 28, 2012 with a proposed roadmap for the development of
rule that would establish a uniform fiduciary duty for broker-dealers and
investment advisers. The letter proposed a compromise framework for the
rulemaking that started with a framework proposed by Securities Industry
and Financial Markets Association (SIFMA) in July 2011. The letter
highlighted areas of agreement with SIFMA’s proposed framework and offered
alternative policy approaches where we disagreed. Among other things, the
letter reinforced the Coalition’s position, shared by the participating
consumer and industry organizations, that the uniform fiduciary duty as
applied to broker-dealers should not disrupt transaction-based aspects of
the broker-dealer business model. We are hopeful that this letter will form
the basis for a consensus among all organizations that support the
fiduciary standard and encourage the SEC to move forward with this long
overdue investor protection reform.

Prior
to our most recent letter, the SEC had indicated its intent to issue a
request for information and data prior to issuing a proposed fiduciary
rule. This request is expected in the second quarter of 2012. We will be
carefully examining the SEC’s request and will be evaluating what we can
provide the SEC in support of this rulemaking.